Branded Apparels

Institutional Equity

Page Industries

Jayesh Sundar Sturdy growth across segments

+91 22 67069944 Page Industries Limited (Page) continued with its strong
Buy
Jayesh.sundar@investsmartindia.com
performance during Q2FY08. For H1FY08, the company’s total
revenues and net profits grew by 38% and by 45% YoY
Rs443
respectively. A notable fact during the quarter was the strong October 29, 2007

Shareholding (%)
contribution of all segments to Page’s overall growth. A sharp Market cap
5% increase in average realisations and a drop in raw material Rs bn 5
Foreign Promoters 48.2 US$ mn 125
costs led to a decline in the ratio of raw material costs to sales,
Indian Promoters 24.1 Avg 3m daily volume
from 49.7% in Q1FY08 to 47.8% in Q2FY08. Hence, we expect
FII’s 6.5 7,071
operating margins to improve in the next few quarters.
MFs 13.2 Avg 3m daily value
Others 8.0 Page continued with its aggressive expansions in distribution Rs mn 3
network and EBO chains during the quarter. Shares outstanding
(mn)
During FY07-09, we expect Page to post a strong 36% CAGR in 11
Share price performance topline and a 50% CAGR in bottomline, led by new product Reuters/NSE

52-week high/low (Rs) 489/240 introductions and marketing initiatives. Currently, the stock PAGE.BO/PAGEIND

-1m -3m -12m trades at 17.4X and 13.2X our FY08E and FY09E EPS Bloomberg

Abs (%) 0.6 9.8 - respectively; this is at a significant discount to other apparel PAG.IN

Rel* (%) -14.8 -13.7 - and accessory brands in the domestic market. We continue to Sensex
18,716
*to Nifty maintain a BUY on the stock.
Nifty
Key highlights during the quarter were: 5,559

Stock chart Strong growth across segments drives topline growth:

Page reported a strong topline growth of 36% YoY during
500 Q2FY08 and a 38% YoY growth for H1FY08. All the
400 segments equally contributed to the company’s strong
300 growth; the women’s innerwear segment lead the pack,
200 registering a strong 42% YoY growth during the quarter
(see table 1).
M-07

M-07

J-07

S-07

Table 1. Segment-wise growth

Q2FY08 over H1FY08 over

(% growth) Q2FY07 H1FY07
Men's wear 36 36
Women's wear 42 41
Others (leisurewear and socks) 36 45
Source: IISL research, company

Margins to expand: Page’s operating margins reported a

marginal decline YoY during the quarter, from around
20% to 18.8%. This was due to a large, one-time
component of advertising and marketing expenses that
almost doubled during the quarter. Sharp rise in
realisations by 5% and fall in fabric prices, however, led
to a drop in the ratio of raw material costs to sales

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 Branded Apparels
Institutional Equity

Page Industries
sequentially from 49.7% in Q1FY08 to 47.8% in Q2FY08.
We expect the company’s margins to improve, going forward, as the
incremental spend on advertisement and marketing would be lower than the
growth in volumes. Besides, Page has increased the prices of some of its
products by around 3% during the quarter. This move is also likely to support
the expansion in margins, going forward.
Strengthening reach: During Q2FY08, Page added five EBOs in Agra and Jaipur.
Besides, the company has been strengthening its distribution reach since the
past few quarters; the company’s distributors stood at 274 at the end of the
quarter against 147 during January 2007.
Benefits from Marketing and advertisement initiatives to flow-in: Page plans to
enhance its focus on brand building through mediums such as brand
advertisements and point-of sale advertisement support (modules). In this
context, it completed a photo shoot for a nationwide brand positioning
campaign to be launched in November 2007. In addition, the company would
also launch regional and product specific advertisements. These steps would
enhance the company’s visibility, thereby supporting its growth in the
distribution network and ensuring the smooth roll-out of new products.
Strong pipeline of new products: Page launched its sleepwear range during
the last quarter and has laid down a strong pipeline of product launches for
the coming quarters. These products would continue to drive Page’s strong
volume and value growth. The company plans to launch printed t-shirts and
bermudas during Q3FY08, and has hired a senior designer for the same. The
international collection from Jockey, USA would also be launched during this
quarter. The company’s 3D innovation collection has been scheduled for
launch in Q4FY08.
Strong growth expected: We expect Page to post a strong 35% growth in
topline and a 50% growth in bottomline, going forward. This growth is likely to
be supported by the company’s aggressive additions to the distribution
network, launch of new products, and marketing and advertising initiatives.
BUY maintained: Currently, the stock trades at 17.4X and 13.2X our FY08 and
FY09 EPS respectively. Page trades at a discount over other apparel and
accessory brands despite its (a) superior business model, (b) market
leadership in mid-premium innerwear segment, (c) significantly higher and
sustainable return ratios, and (d) a strong visibility for a robust growth over
the medium term. Therefore, we continue to maintain a BUY on the stock.

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Institutional Equity

Page Industries
Table 2. Quarterly result table
Rs mn H1FY08 H1FY07 YoY (%) Q2FY08
Net sales from operations 955.2 691.6 38.1 481.0
Total Expenses 763.5 553.6 37.9 390.7
%of net sales 79.9 80.0 81.2
(Increase)/Decrease in stock (17.2) (37.7) (23.4)
Raw material Consumed 482.3 395.3 22.0 253.1
%of net sales 48.7 51.7 47.8
Employee cost 138.0 92.7 48.9 71.6
%of net sales 14.4 13.4 14.9
Other Expenses 160.4 103.3 55.2 89.4
%of net sales 16.8 14.9 18.6
EBITDA 191.6 138.0 38.9 90.3
%of net sales 20.1 20.0 18.8
Depreciation 13.9 5.3 162.2 6.5
EBIT 177.7 132.7 33.9 83.8
%of net sales 18.6 19.2 17.4
Interest 15.6 10.5 48.7 7.2
Other Income 23.7 12.6 88.9 12.9
PBT 185.9 134.8 37.9 89.5
Provision for tax (including deferred tax) (56.5) (45.7) (26.5)
Net Profit 129.4 89.1 45.2 63.0
NP margin % 13.5 12.9 13.1
EPS 11.6 8.0 45.2 5.7
Source: IISL research, company

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Financials
Profit & Loss Balance Sheet
Rs mn FY06 FY07 FY08E FY09E Rs mn FY06 FY07 FY08E FY09E
Net sales 1,017.8 1,368.6 1,904.6 2,533.9 Equity capital 24.4 111.5 111.5 111.5
YoY (%) 39.4 34.5 39.2 33.0 Preference capital 0.0 0.0 0.0 0.0
Total expenses 823.8 1,087.8 1,477.9 1,964.1 Reserves 100.9 565.7 784.4 1,094.3
Inc/dec in stock (1.3) (97.1) (29.9) (29.9) Net worth 125.2 677.2 895.9 1,205.8
Raw material cost 369.7 571.3 718.8 938.4
Staff cost 127.7 204.0 251.8 330.0 Total borrowings 131.9 253.2 243.1 181.3
Power and fuel cost 7.2 9.7 13.4 17.8 Deferred tax 11.7 8.3 9.8 8.2
Other manufacturing exp. 156.6 217.0 239.8 319.2 Total liabilities 268.9 938.8 1,148.8 1,395.3
Other expenses 164.0 182.9 284.0 388.5
EBIDTA 194.0 280.7 426.7 569.9 Gross block 166.3 245.7 406.3 566.3
YoY (%) 141.9 44.7 52.0 33.6 Less: Acc. depreciation 43.5 58.1 88.8 125.6
EBIDTA (%) 19.1 20.5 22.4 22.5 Net block 122.7 187.6 317.5 440.7
Other income 3.9 18.1 32.7 27.5 CWIP 0.0 60.8 20.0 0.0
PBIDT 197.9 298.9 459.4 597.4
Interest 15.8 23.6 23.5 18.6 Investments 7.0 137.0 388.8 324.0
Gross profit 182.1 275.2 435.9 578.8 Current assets 324.1 825.0 615.7 808.3
Depreciation 8.4 15.3 26.5 36.8 Inventories 233.9 363.7 439.0 558.8
PBT and extra ordinary 173.7 259.9 409.4 541.9 Debtors 59.0 55.8 110.4 146.8
Extra ordinary items (0.3) (0.8) 0.0 0.0 Cash 0.3 301.9 10.0 10.0
PBT 173.4 259.0 409.4 541.9 Loans and advances 30.9 103.6 56.4 92.7
(-) Tax 59.5 88.8 127.7 169.1 Current liabilities 154.5 243.9 153.1 180.3
Tax/ PBT 34.3 34.3 31.2 31.2 Provisions 30.5 27.7 93.4 93.4
PAT 113.9 170.3 281.6 372.8 Net current assets 139.1 553.4 369.2 534.6
Adjusted net profit 113.9 170.3 281.6 372.8 Miscellaneous expenses 0.0 0.0 53.3 96.0
YoY (%) 169.0 49.5 65.4 32.4 Total assets 268.9 938.8 1,148.8 1,395.3

Key Ratios Cash Flow

FY06 FY07 FY08E FY09E Rs mn FY06 FY07 FY08E FY09E
EPS (Rs) 467.7 15.3 25.2 33.4 Net profit 113.9 170.3 281.6 372.8
Adjusted EPS (Rs) 0.0 0.0 0.0 0.0 Depn and w/o 8.4 15.3 26.5 47.5
CEPS (Rs) 500.0 17.2 27.5 36.6 Deferred tax (0.5) 5.9 (1.2) (1.6)
Book value (Rs) 514.1 60.7 80.3 108.1 Change in working cap (25.1) (112.6) (107.7) (165.4)
Dividend per share (Rs) 227.6 5.0 5.6 5.6 Other income 0.0 0.0 0.0 0.0
Debt-equity (x) 1.1 0.4 0.3 0.2 Operating cash flow 96.7 78.8 199.2 253.3
ROCE 81.5 90.6 38.7 42.2
ROE 118.7 42.4 35.8 35.5 Other income 0.0 0.0 0.0 0.0
Capex (37.6) (141.0) (115.6) (140.0)
Valuations Investments (4.0) (130.0) (251.8) 64.8
Investing cash flow (41.6) (271.0) (367.4) (75.2)
PE (x) 0.9 29.0 17.5 13.3
Cash PE (x) 0.9 25.8 16.1 12.1 Dividend (55.4) (55.5) (62.9) (62.9)
Fresh equity 0.0 350.1 (0.0) (0.0)
Price/book value (x) 0.9 7.3 5.5 4.1 Debt 0.2 121.3 (10.1) (61.9)
Dividend yield 51.4 1.1 1.3 1.3 Financing cash flow (55.2) 415.9 (73.0) (124.8)
Market cap/sales 1.1 3.6 2.6 1.9 Others 0.0 77.9 (50.7) (53.3)
EV/sales (x) 1.2 3.6 2.7 2.0 Net change in cash (0.1) 301.6 (291.9) 0.0
EV/EBDITA (x) 6.2 17.4 12.1 9.0 Opening cash 0.4 0.3 301.9 10.0
Closing cash 0.3 301.9 10.0 10.0

Notes:
Page Industries issued bonus shares of in the ratio 3:1 in FY07
The face value of the shares has been changed to Rs10 from Rs100 in FY07

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Page Industries

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Certification of Research Analyst

I, Jayesh Sundar ,hereby certify that: the views expressed in the attached research report accurately reflect my personal views about Page
Industries and its securities, and my compensation is not directly or indirectly, related to the specific views or recommendations expressed in
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Page Industries

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